GBP/USD Rejected Under 1.3648 ahead of US Inflation (CPI) Figures
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- British pound drew its support from hopes that the Omicron outbreak would not derail the UK economy.
- US annual inflation is likely to surge to 7% in the final month of 2021, a new record since June 1982, and up from 6.8% in November.
- GBP/USD price forecast is bullish as the pair headed north towards a major resistance level of 1.3650.
GBP/USD is trading slightly bearish at $1.3630 ahead of US inflation figures. The day before, GBP/USD closed at $1.3635 after hitting a high of $1.3637 and a low of $1.3561. The pair surged on Tuesday to its highest level since November 4th amid the fresh weakness of the US dollar.
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Risk-on sentiment fades
The shift in market sentiment from a risk-on mood to a mixed one came after Federal Reserve Chairman Jerome Powell testified before the US Senate Banking Committee on his re-nomination to head the US central bank. The currency pair GBPUSD was left at the mercy of the US dollar’s developments as there was no significant macroeconomic data to be released from the UK side.
The British pound drew its support from hopes that the Omicron outbreak would not derail the UK economy. Moreover, the UK Prime Minister, Boris Johnson, said they were looking to reduce the quarantine period to five days from seven and had made great progress in seeing Omicron.
This, along with rising bets for additional rate hikes by the Bank of England, pushed GBP/USD higher on the board. It was already moving on the upside amid the selling bias surrounding the US dollar. Because of falling US Treasury yields, the bulls of the US dollar remained on the defensive. The greenback was further down due to the generally positive tone in the equity markets, which decreased its safe-haven appeal.
Speeches by US Federal Reserve officials amplify the hawkish sentiment.
The markets had already priced in the possibility of an eventual Fed rate hike in March. Therefore, the latest hawkish comments from Fed officials failed to spark bullish momentum in the USD. On Tuesday, Fed officials, including Cleveland Fed President Loretta Mester, Kansas City Federal Reserve President Esther George, and Federal Reserve Chair Jerome Powell, backed discussions about raising interest rates and shrinking balance sheets.
Atlanta Fed President Raphael Bostic also said he predicted three rate hikes at the December meeting. However, now he foresees that one more could be needed. He further agreed with Mester and George regarding reducing the balance sheet as soon as possible.
A quick economic event outlook
On the data front, at 05:01 GMT, the BRC Retail Sales Monitor surged to 0.6%, against the forecasted 0.3%. It supported the British pound, which added gains in the GBP/USD currency pair. From the US side, at 15:50 GMT, the NFIB Small Business Index remained flat with projections of 98.9. At 20:00 GMT, the IBD/TIPP Economic Optimism fell to 44.7 from an estimated 50.2 and weighed on the US dollar, pushing GBP/USD further.
Eyes on US Inflation (CPI) Figures
Later today, traders’ focus will be on the US CPI inflation data. Annual inflation in the United States likely surged to 7% in the final month of 2021, a new record since June 1982, and up from 6.8% in November. The monthly rate is expected to fall to 0.4 percent from 0.8 percent, while the CPI, excluding food and energy, is expected to rise 0.5 percent or 5.4 percent year on year.
Inflation accelerated in 2021 due to supply restrictions imposed by the pandemic, surging energy costs, labour shortages, rising demand, and a low base effect from 2020. Fed Chair Powell recently committed to doing whatever it takes to manage inflation, including raising interest rates further, because inflationary pressures are expected to persist far beyond the middle of 2022.
What to Look for in US Inflation (CPI) Figures
The yearly CPI rate is expected to have remained stable in December at 6.8 percent. However, the core figure, which excludes energy and food prices, is expected to be 5.4 percent, up from 4.9 percent previously. Markit’s most recent PMI surveys back up these predictions. First, companies’ selling prices ‘increased substantially,‘ but at the slowest rate in three months. It’s exactly what the monthly CPI print is projected to reflect.
Daily Technical Levels
Support Resistance
1.3585 1.3661
1.3534 1.3688
1.3508 1.3738
Pivot Point: 1.3611
GBP/USD Price Forecast – Upward channel to support at 1.3522
The GBP/USD price forecast is bullish as the pair heads north towards a major resistance level of 1.3650. However, the formation of candles below the 1.3650 resistance level signals the possibility of a downtrend or a correction.
During the early European hours, the GBP/USD pair was getting rejection below the 1.3648 resistance level and slipped to trade at 1.3635. The pair has formed a Doji candle and a bearish engulfing, supporting the odds of a bearish correction in the market.
The GBP/USD pair may find immediate resistance at 1.3648 or 1.3680 levels on the bullish side. Looking at the leading technical indicator such as the RSI, it’s holding near 62 and suggesting odds of an uptrend continuation in the GBP/USD pair. However, the Stoch RSI is coming out of the overbought zone. Therefore, we can expect a bearish correction in the pair.
Lastly, the 50-day exponential moving average stays at 1.3580. Well, that’s a bit far from 1.3630 and signals room for a bearish correction. Therefore, consider looking for a sell trade below 1.3648 until the 1.3600 or 1.3565 mark. Good luck, and stay tuned for more updates!
